In recent years, we have worked with dozens of small and medium enterprises (SMEs), advising them on growth, planning and securing appropriate bank finance. We have interacted closely with owners of SMEs of all sizes, even companies with sales of Dh200 million, in the UAE.
During these discussions we have come across a common set of pressing problems SMEs face in dealing with banks. Some of them may seem trivial but have a huge impact on their workings.
While the segment is a highly profitable and rapidly growing one for banks, they have many fears in dealing with SMEs and realise that lack of knowledge, management depth, discipline and transparency are serious issues.
But how many banks are aware of the bank-related issues faced by SMEs? Here are some of the most pressing and which banks would do well to fix — simple solutions are called for, but those that will have far-reaching consequences.
Mentoring and advice — bankers don’t advise enough
SMEs lack knowledge on many fronts and we have realised that owners rely on advice from trusted sources rather than the use of resources (seminars, online, etc.). Owners constantly complain they have no one to turn to.
Bankers are well positioned to fill this gap and advise clients on concrete steps to de-risk and/or enhance their business propositions. Advice can pertain to using better financing tools, a different auditor, a better accounting system, use of a specialist advisory firm, better websites or even the introduction of the owner to new opportunities.
Bankers must be trained and allowed the time to mentor and interact closely with SME owners. Another proactive approach could also be to incentivise clients to accept and implement sound advice.
Many bankers lack knowledge
Owners complain of the relative inexperience of relationship managers, a lack of broader knowledge and/or industry specialisation. We notice that training of relationship managers is rather narrow and often restricted to risk, credit management, selling skills, etc. General management, corporate governance or broader skills training from the perspective of educating customers is not the norm. Increased awareness of larger management, control and process issues faced by SMEs will go a long way in educating owners.
Another serious issue that has been expressed is that relationship managers have a shallow understanding of SME operations. Invariably, all businesses tend to be viewed from a trading perspective — simple trade financing being the most common sort. For instance, balance sheet analyses often focus on stocks and receivables, to the exclusion of other important parameters.
This is so evident in the questions we have seen bankers ask owners. Bankers with industry specialisation will acquire deep industry knowledge and spread best practices to clients.
Despite banks’ best efforts, we find client coverage is based more on a location-wise approach. Travel times and physical proximity to clients take precedence over industry specialisation. This should change.
Accessibility and frequent change of relationship managers
A recurring, serious complaint is the lack of accessibility of relationship managers. Phone calls not being returned or emails not answered seem trivial, but are causing huge frustration, loss of business (both for banks and SMEs) and erosion of bank loyalty. Secondly, relationship managers change frequently, just when relationships are solidifying, with knowledge and trust being built. This causes angst and helplessness.
The relationship manager rules
When there is frustration with a relationship manager, owners feel they have no one to turn to. Senior level contacts at banks are missing. This is critical if banks want to de-risk their portfolio, create multiple bank contacts with clients and a channel for complaints that provides a natural check and balance against any form of misdemeanour.
While the SME business model may make it difficult for regular senior level contact with SMEs, there is a way out.
Banks should seek feedback from clients. It escapes one as to why no satisfaction surveys, mystery shopping, etc, is not done with SMEs. If banks can do this for credit cards, why not for SMEs?
Secondly, the creation of an ombudsman, a channel or safety valve to ensure free flow of concerns/complaints is long overdue. An ombudsman who is senior and demonstrates action will also serve as a natural check to errant relationship managers.
Slow reaction time
SMEs complain that banks take far too long in processing requests. Credit applications taking five to six months for an answer is not uncommon. We are constantly assisting SMEs in securing financing, but those who can do it themselves are often frustrated due to delays. Public commitments by banks with regard to turnaround times of requests will go a long way in ensuring prompt service.
The feedback from owners is fairly uniform across industries, size and location and banks will be well advised to quickly address these relatively simple issues. Some problems seem trivial but what matters is that they are causing a huge amount of ill will among SMEs.
This bodes ill for banks as well.
The writer is the Managing Director of Vianta, which works with SMEs in raising bank finance.